Ofgem orders suppliers to declare broker fees

Suppliers will have to provide a clear breakdown of third-party broker fees to business customers, under new rules tabled by Ofgem.

The move is among a suite of protections Ofgem is proposing for the business retail market.

Other changes include expanding the remit of suppliers’ complaint handling rules so that all small businesses – with fewer than 50 employees – can take disputes to the Energy Ombudsman. (Currently only micro businesses can take disputes to the Energy Ombudsman).

Tim Jarvis, director of markets at Ofgem, said: “Businesses are no different from any energy customer and should be able to expect excellent service and fair prices. However, we have heard from too many businesses, particularly small and medium sized ones, that this isn’t always the case.

“Today’s proposals will ensure better deals, better protection and more clarity for businesses – so they have the best chance of thriving at this difficult time.”

Concerns around “hidden” broker fees have been building for the past two years following an Ofgem investigation which showed that brokers or third-party intermediaries (TPIs) might have been charging businesses thousands of pounds in energy commissions without customers’ knowledge.

In October, law firm Harcus Parker announced that more than 4,500 organisations across England and Wales have joined a £2 billion group legal claim in a bid to reclaim payments made to “unscrupulous” energy brokers.

Among those to sign up to the claim are 2,801 shops and restaurants, 703 health and beauty businesses, 477 professional services businesses, and 164 sports and community groups.

The claim relates to alleged “hidden commissions” paid to energy brokers by retailers including British Gas, Eon and SSE.

According to a review of the market by Future Energy Associates – published this week – there are now around 3,000 brokers operating in Britain but there are “no prerequisites, examinations, or formal qualifications necessary to establish oneself as an energy broker”. Neither are there any regulations governing the size of the commissions they can charge, which are often “discreetly embedded” into unit rates.

In some instances, these commissions can inflate the overall cost of business’ energy by more than 50%. If they are disclosed, this is often done verbally, rather than in writing, the review adds.

Earlier this year, Octopus Energy also called for energy broker commissions to be capped, after research it conducted found millions of small businesses had a negative experience with a broker in the last year.

Further research by Octopus found 78% of small businesses want commission clearly stated at the point of sale, while 70% want a cap on broker commissions.

Utility Week will be delving into the topic of broker fees in more detail in our upcoming Digital Weekly edition, which will be published on 8 December here.